Thursday, June 02, 2011

With Substitutes, Monopoly Power Is Temporary

From The Economist comes this story illustrating how the market power of a monopolist (or dominant firm) is often temporary and frequently diminishes over time due to the availability and development of substitutes. In this case, a 19th century technology for electric motors is being revived by Toyota as one alternative to modern motors made with neodymium, a rare earth element controlled by China.

"Today, China produces 95% of the world’s supply of rare-earth metals, and has started limiting exports to keep the country’s own high-tech industries supplied.

The rare-earth element that other industrial countries worry about most is neodymium. It is the key ingredient of super-strong permanent magnets. Over the past year the price of neodymium has quadrupled as electric motors that use permanent magnets instead of electromagnetic windings have gained even wider acceptance. Cheaper, smaller and more powerful, permanent-magnet motors and generators have made modern wind turbines and electric vehicles viable.

That said, not all makers of electric cars have rushed to embrace permanent-magnet motors. The Tesla Roadster, an electric sports car based on a Lotus Elise, uses no rare-earth metals whatsoever. Nor does the Mini-E, an electric version of BMW’s reinvention of the iconic 1960s car. Meanwhile, the company that pioneered much of today’s electric-vehicle technology, AC Propulsion of San Dimas, California, has steered clear of permanent-magnet motors. Clearly, a number of manufacturers think the risk of relying on a single source of rare-earth metals is too high.

The latest carmaker to seek a rare-earth alternative is Toyota. The world’s largest carmaker is reported to be developing a neodymium-free electric motor for its expanding range of hybrid cars. Following in AC Propulsion’s tyre tracks, Toyota is believed to have based its new design on that electromotive industrial mainstay, the cheap and rugged alternating-current (AC) induction motor patented by Nikola Tesla, a Serbian-American inventor, back in 1888."

"In the past the main problem with asynchronous induction motors was the difficulty of varying their speed. That is no longer an issue, thanks to modern semiconductor controls."

I had an experience with my rechargable electric lawn mower. We bought it about eight years ago and had problems with it holding a charge. I took it in to the Black and Decker repair center for a fix. The Fix (for free) a new battery with improved hardware and software. Runs great, thanks to improved semiconductors.

"Despite their name — a holdover from the 1800s and early 1900s — rare earths aren’t particularly rare; they’re much more common than gold, and some are nearly as common as lead. They’re found in relatively low concentrations, however, requiring the processing of lots of rock. Ten states are known to have significant rare-earth deposits, according to a 2010 study by the USGS."